DELPHI PENSIONS

Key Events Leading to Plan 

Terminations 

Statement of 

Barbara D. Bovbjerg, Managing Director, Education, 

Workforce, and Income Security Issues, and 

A. Nicole Clowers, Director, Financial Markets and 

Community Investment Issues

Testimony 

Before the Subcommittee on 

Government Operations, Committee on 

Oversight and Government Reform, 

House of Representatives

For Release on Delivery 

Expected at 1:30 p.m. 

Wednesday, September 11, 2013

GAO-13-854T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-854T, a testimony 

before the Subcommittee on Government 

Operations, Committee on Oversight and 

Government Reform, House of 

Representatives

September 11, 2013

DELPHI PENSIONS

Key Events Leading to Plan Terminations

Why GAO Did This Study

The Delphi Corporation was a global 

supplier of mobile electronics and 

transportation systems that began as 

part of GM and was spun off in 1999. 

Delphi filed for bankruptcy in 2005, and 

in July 2009, PBGC terminated 

Delphi's six defined benefit pension 

plans and assumed trusteeship of the 

plans. Because of the resulting 

differences in participant benefits, 

questions have been raised about how 

PBGC came to terminate the plans, 

whether treatment for certain Delphi 

workers was preferential, and the role 

of Treasury in these outcomes.

GAO’s testimony describes 1) key 

events related to the termination of 

Delphi pension plans and the reasons 

for GM providing retirement benefit 

supplements to certain Delphi 

employees, and 2) Treasury's role in 

those events. The testimony is 

primarily based on GAO’s March and 

December 2011 reports that examined 

these and other related issues. In

preparing these reports, GAO relied on 

publicly available documents—such as 

GM and Delphi bankruptcy filings, 

Treasury officials’ depositions, and 

company reports to the Securities and 

Exchange Commission—and on 

documents received from groups GAO 

interviewed, including Delphi, GM, the 

Delphi Salaried Retiree Association, 

PBGC, and Treasury.

What GAO Found

The termination of the six defined benefit plans that were sponsored by the 

Delphi Corporation (Delphi) and the provision of benefit protections to some 

Delphi employees, but not others, culminated from a complex series of events 

involving Delphi, the General Motors Corporation (GM), various unions, the U.S. 

Department of the Treasury (Treasury), and the Pension Benefit Guaranty 

Corporation (PBGC). When Delphi spun off from GM in 1999, three unions 

secured an agreement that GM would provide a retirement benefit supplement 

(referred to as "top-ups") for their members should their pension plans be frozen 

or terminated and they were to suffer a resulting loss in pension benefits. These 

three unions were: (1) the International Union, United Automobile, Aerospace, 

and Agricultural Implement Workers of America (UAW); (2) the International 

Union of Electronic, Electrical, Salaried, Machine and Furniture Workers, AFLCIO (IUE); and (3) the United Steelworkers of America (USWA). No other Delphi 

employees had a similar agreement to receive a top-up, including salaried 

workers and hourly workers belonging to other unions. Over the course of events 

that unfolded over the next decade, the agreements with these three unions 

ultimately were preserved through the resolution of the bankruptcies of both GM 

and Delphi. Because Delphi’s pension plans were terminated with insufficient 

assets to pay all accrued benefits, and because PBGC must adhere to statutory 

limits on the benefits it guarantees, many Delphi employees will receive a 

reduced pension benefit from PBGC compared with the benefits promised by 

their defined benefit plans. Those Delphi employees receiving the top-ups will 

have their reduced PBGC benefit supplemented by GM while others will not.

As GM’s primary lender in bankruptcy, Treasury played a significant role in 

helping GM resolve the Delphi bankruptcy. Treasury’s effort to restructure GM 

included helping GM find the best resolution of the Delphi bankruptcy from GM’s 

perspective. This effort was guided by the following principles: preserving GM’s 

supply chain, resolving Delphi’s bankruptcy as quickly as possible, and doing so 

with the least possible amount of investment by GM. However, court filings and 

statements from GM and Treasury officials suggest that Treasury deferred to 

GM’s business judgment on decisions about the Delphi pension plans—that is, 

their sponsorship and the decision to honor existing top-up agreements. 

According to public records and Treasury officials, Treasury agreed with GM’s 

assessment that the company could not afford the potential costs of taking over 

sponsorship of the Delphi hourly plan, but that the company had solid 

commercial reasons to honor previously negotiated top-up agreements with 

some unions. According to court filings, Treasury officials said that Treasury did 

not explicitly approve or disapprove of GM's agreement to honor previously 

negotiated top-up agreements and PBGC officials stated that PBGC decided to 

terminate the plans independently of Treasury input. Nevertheless, as GAO has 

previously reported, Treasury’s multiple roles created potential or perceived 

conflicts of interests. GAO has emphasized the importance of transparency and 

disclosures of Treasury’s actions as a means to help mitigate potential or 

perceived conflicts related to these roles.

View GAO-13-854T. For more information, 

contact Barbara Bovbjerg at (202) 512-7215 or 

bovbjergb@gao.gov or A. Nicole Clowers at 

(202) 512-8678 or clowersa@gao.gov.
 

Page 1 GAO-13-854T 

Chairman Mica, Ranking Member Connolly, and Members of the 

Subcommittee:

Thank you for the opportunity to discuss our work on the termination of 

Delphi’s pension plans. As you know, the Delphi Corporation (Delphi) was 

a global supplier of mobile electronics and transportation systems that 

began as part of the General Motors Corporation (GM) and was spun off 

as an independent company in 1999.1 Following Delphi’s bankruptcy, the 

Pension Benefit Guaranty Corporation (PBGC), the government 

corporation that insures private-sector defined benefit (DB) plans, 

terminated Delphi’s six plans in July 2009. The plans were estimated to 

be underfunded by a combined $7.2 billion at termination, of which PBGC 

expected to cover about $6 billion.2

Our testimony discusses (1) key events related to the termination of 

Delphi pension plans and the reasons for GM providing top-ups to certain 

Delphi employees, and (2) Treasury’s role in those events. Our comments 

are based on our March and December 2011 reports that examined these 

issues and on our body of work on the federal assistance provided to the 

Since the termination, there has been 

controversy over different pension benefit outcomes for certain unionized 

and non-unionized Delphi retirees. Further, the involvement of the U.S. 

Department of the Treasury (Treasury) in the bankruptcy of GM, Delphi’s 

former parent company, raised questions for some about the role that 

Treasury played in PBGC’s decision to terminate Delphi’s pension plans, 

the decisions by GM to provide retirement benefit supplements (“top-ups”) 

to certain Delphi employees, and the resulting outcomes for Delphi plan 

participants.

 

1

At the time of the spinoff, Delphi established two pension plans, with assets and liabilities 

transferred from their GM counterparts: the Delphi Hourly-Rate Employees Pension Plan 

(hourly plan) and the Delphi Retirement Program for Salaried Employees (salaried plan). 

Delphi acquired four more plans after the spin-off from GM. Before bankruptcy 

reorganization, GM’s legal name was General Motors Corporation. The legal name of the 

new entity created in the bankruptcy process is General Motors Company (the entity that 

purchased the operating assets of the pre-reorganization corporation, which we discuss 

later in this statement). As of October 19, 2009, General Motors Company became 

General Motors LLC. Throughout this statement, in cases where a distinction is important, 

we refer to the pre-reorganization corporation as “old GM” and the post-reorganization 

company as “new GM.” 

2

A DB plan promises a benefit that is generally based on an employee’s final pay and 

years of service. The employer is generally responsible for funding all or most of the 

benefit, investing and managing plan assets, and bearing the investment risk. 

 
 

Page 2 GAO-13-854T 

automakers through the Automotive Industry Financing Program.3 To 

construct a timeline of events and identify Treasury’s role in those events 

for our reports, we relied on publicly available documents, such as 

bankruptcy filings by GM and Delphi, Treasury officials’ depositions, 

company reports to the Securities and Exchange Commission, press 

releases; and documents received from groups we interviewed, including

Delphi, GM, the Delphi Salaried Retiree Association (DSRA), PBGC, and 

Treasury. We also reviewed the August 2013 report from Special 

Inspector General for the Troubled Asset Relief Program (SIGTARP) that 

examined Treasury’s role in GM’s decision to provide top-ups for certain 

hourly workers, including whether the Administration or Treasury 

pressured GM to provide additional funding for the hourly plan.4 Our 

review differed from SIGTARP’s review in terms of focus, scope, and 

methodology.5

We performed the work on which this statement is based in accordance 

with generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained 

 

3

See GAO, Key Events Leading to the Termination of the Delphi Defined Benefit Plans, 

GAO-11-373R (Washington, D.C.: Mar. 30, 2011); Delphi Pension Plans: GM Agreements 

with Unions Give Rise to Unique Differences in Participant Benefits, GAO-12-168 

(Washington, D.C.: Dec. 15, 2011); Troubled Asset Relief Program: Automaker Pension 

Funding and Multiple Federal Roles Pose Challenges for the Future, GAO-10-492 

(Washington, D.C.: Apr. 6, 2010); Troubled Asset Relief Program: Continued Stewardship 

Needed as Treasury Develops Strategies for Monitoring and Divesting Financial Interests 

in Chrysler and GM, GAO-10-151 (Washington, D.C.: Nov. 2, 2009).These products 

provide details on the scope and methodology of this work.

4

Special Inspector General for the Troubled Asset Relief Program, Treasury’s Role in the 

Decision for GM to Provide Pension Payments to Delphi Employees, SIGTARP 13-003 

(Washington, D.C.: Aug. 15, 2013).

5

Both GAO and SIGTARP were asked to examine various issues surrounding the 

termination of the Delphi pension plans. To mitigate potential overlap between our efforts, 

we agreed to focus on different aspects of the termination. For example, the two 2011 

GAO reports focused primarily on PBGC’s decision to terminate the Delphi defined benefit 

plans and how benefits were determined for different Delphi retirees, including the events 

leading to the payment of top-ups to certain Delphi employees, and how the termination of 

the plans compared to the termination of other large pension plans. In contrast, SIGTARP 

focused on whether GM’s decision to provide additional funding for the hourly plan was 

influenced by Treasury or the Administration.
 

Page 3 GAO-13-854T 

provides a reasonable basis for findings and conclusions based on our 

audit objectives.6

As part of Delphi’s spin-off from GM in 1999, GM was required to 

collectively bargain with the unions affected by the spin-off—including the 

International Union, United Automobile, Aerospace, and Agricultural 

Implement Workers of America (UAW); the International Union of 

Electronic, Electrical, Salaried, Machine and Furniture Workers, AFL-CIO 

(IUE); and the United Steelworkers of America (USWA), as well as other 

“splinter” unions.

7 As a result of these negotiations, GM agreed to pay 

top-ups to “covered employees” with UAW, IUE, or USWA if the Delphi 

pension plans were terminated or frozen at a later date, covering any 

difference between the amount PBGC would pay them and the benefit 

amount promised by the Delphi plans.8 Also, on December 22, 1999, 

Delphi agreed to indemnify GM for all benefits provided by GM under the 

UAW benefit guarantee.9

 

6

For additional information on scope and methodology, see 

At the time GM entered into these agreements, 

Delphi’s salaried plan was fully funded while Delphi’s hourly plan was not 

GAO-11-373R, GAO-12-168, 

GAO-10-492, and GAO-10-151. 

7

The splinter unions include the International Association of Machinists and Aerospace 

Workers; International Brotherhood of Electrical Workers; Michigan Regional Council of 

Carpenters, Local 687 and Interior Systems, Local 1045; International Brotherhood of 

Painters and Allied Trades of the United States and Canada, Sign and Display Union 

Local 59; International Brotherhood of Teamsters; International Brotherhood of 

Boilermakers; International Union of Operating Engineers; and United Catering Restaurant 

Bar and Hotel Workers. 

8

“Covered employees” were generally defined as those who had been represented by 

these unions as GM workers and now as Delphi workers with no break in employment or 

seniority as of May 28, 1999. 

9

This indemnification would allow GM to have a claim against Delphi for any expenses 

incurred by GM for coverage of guaranteed benefits. 

Key Events Leading to 

the Termination of 

Delphi’s Pension 

Plans 

Three Unions Secured TopUp Agreements in 

Negotiations Following 

Delphi’s Spin-Off from GM
 

Page 4 GAO-13-854T 

fully funded.10 GM officials said that because the salaried plan was fully 

funded at the time of the spinoff, Delphi recognized that the plan was 

Delphi’s responsibility; Treasury officials would also later note, in a legal 

brief commenting on GM’s decision to pay top-ups, that the salaried plan 

was fully funded at the time GM transferred it to Delphi.

From 2001 to 2005, Delphi suffered large losses, and the company filed 

for bankruptcy in October 2005. After Delphi filed for bankruptcy, Delphi 

and GM agreed to extend the top-up agreements with UAW, IUE, and 

USWA.11

In September 2007, GM and Delphi entered into a global settlement 

agreement that included a plan to transfer assets and liabilities from 

Delphi’s hourly pension plan to the GM hourly pension plan, and for 

Delphi to freeze new accruals to its hourly plan. The agreement did not 

establish a specific effective date, but listed various conditions that had to 

be met for it to become effective. Before becoming effective, the 

agreement was modified in September 2008, based on further 

negotiations described below.

The splinter unions negotiated for other benefits at this time, but 

were not guaranteed top-ups. No other agreements were reached in 

relation to top-ups for salaried workers.

Under Delphi’s initial reorganization plan, the company planned to 

emerge from bankruptcy without terminating its pension plans. However, 

in April 2008, the deal with investors that would have made this possible 

fell through. Five months later, in September 2008, Delphi and GM 

amended their September 2007 global settlement agreement to specify 

 

10According to data provided by Delphi, based on a fair market valuation of plan assets 

the Delphi salaried plan was 108.8 percent funded as of year-end 1998 and 122.7 percent 

funded as of year-end 1999 while the Delphi hourly plan was 69.1 percent funded as of 

year-end 1999. A plan is fully funded if as of a particular date, plan assets equal or exceed 

the relevant measure of plan obligations. However, for the typical pension plan invested in 

a mix of stocks and bonds, measures of funded status can be highly volatile, so that a 

plan that is fully funded on one date could be substantially less than fully funded on a 

subsequent date.

11In June 2007, GM, Delphi, and UAW entered into a memorandum of understanding 

(MOU) extending the GM benefit guarantee for Delphi UAW workers, which would be 

enforceable if benefit accruals for future credited service in the Delphi hourly plan were 

frozen and if the plan were terminated. On August 5, 2007, GM and Delphi entered into a 

MOU with Delphi IUE, and on August 16, 2007, with Delphi USWA, providing the same 

top-up guarantee as the Delphi UAW MOU.

After Delphi Filed for 

Bankruptcy, Delphi and 

GM Agreed to Extend the 

Top-Up Agreements with 

the Three Unions
 

Page 5 GAO-13-854T 

that GM would take responsibility for approximately $3.4 billion of net 

liabilities in Delphi’s hourly plan in two phases. In the first phase, GM 

would assume a portion of Delphi’s hourly plan with net liabilities of $2.1 

billion. This transfer took place on September 29, 2008. In the second 

phase, upon “substantial consummation” of Delphi’s reorganization, the 

remaining assets and liabilities in Delphi’s hourly plan would be 

transferred to GM. No comparable arrangements were made for a 

transfer of assets and liabilities for Delphi’s salaried plan or other smaller 

plans. In September 2008, Delphi froze its salaried plan and three of its 

smaller plans, and in November 2008, Delphi froze its hourly plan.12

Beginning in the fall of 2008, economic conditions deteriorated throughout 

the automotive industry. Delphi experienced declining revenues as GM 

and other manufacturers sharply reduced production in response to 

rapidly falling sales. According to documents provided by PBGC, when 

Delphi’s financing agreement with its debtor-in-possession (DIP) lenders 

expired on April 21, 2009, Delphi’s operations were threatened by the 

prospect of imminent liquidation. At that point, PBGC determined that it 

would seek termination of the Delphi salaried and hourly pension plans to 

avoid the losses that would result if the DIP lenders were to foreclose on 

their collateral and break up Delphi’s controlled group. However, at the 

request of Delphi and the DIP lenders, PBGC agreed not to proceed with 

the termination in order to allow the parties to continue negotiating. In 

exchange, the DIP lenders agreed to give PBGC advance notice of any 

decision to foreclose so that PBGC could commence termination of the 

Delphi pension plans in time to protect PBGC’s claims.

Meanwhile, GM’s losses in the fall of 2008 led the company to seek 

assistance from Treasury through the Automotive Industry Financing 

 

12A freeze is an amendment to a DB plan to limit some or all future pension accruals for 

some or all participants. For more information on types of freezes and their effects, see 

GAO, Defined Benefit Pensions: Plan Freezes Affect Millions of Participants and May 

Pose Retirement Income Challenges, GAO-08-817 (Washington, D.C.: July 21, 2008). 

Losses throughout the 

Automotive Industry 

Pushed Delphi Near 

Liquidation and GM to 

Seek Assistance from 

Treasury
 

Page 6 GAO-13-854T 

Program (AIFP).13 As a condition of receiving this assistance, GM was 

required to develop a restructuring plan to identify how the company 

planned to achieve and sustain long-term financial viability. In April and 

May 2009, Treasury worked with GM to develop a restructuring plan 

through the Presidential Task Force on the Auto Industry (Auto Task 

Force) and its staff (auto team).14 On June 1, 2009, GM filed for 

bankruptcy and sought the approval of the bankruptcy court for the sale of 

substantially all of the company’s assets to a new entity (“new GM”).15 In 

court documents, a Treasury official stated that Treasury was mandated 

by the President to act in a “commercially reasonable manner” as it 

related to GM’s restructuring and ensure that the new GM assumed only 

those liabilities of the old company that were thought to be “commercially 

necessary” for the new company to operate.16

 

13In December 2008, Treasury established AIFP under the Troubled Asset Relief Program 

(TARP) to help stabilize the U.S. automotive industry and avoid disruptions that would 

pose systemic risk to the nation’s economy. TARP was originally authorized under the 

Emergency Economic Stabilization Act of 2008 (EESA), Pub. L. No. 110-343, div. A, 122 

Stat. 3765 (codified as amended at 12 U.S.C. §§ 5201-5261). EESA originally authorized 

Treasury to purchase or guarantee up to $700 billion in troubled assets. The Helping 

Families Save Their Homes Act of 2009 amended EESA to reduce the maximum 

allowable amount of outstanding troubled assets under EESA by almost $1.3 billion, from 

$700 billion to $698.741 billion. Pub. L. No. 111-22, div A, § 402(f),123 Stat. 1632, 1658. 

Under EESA the appropriate committees of Congress must be notified in writing when the 

Secretary of the Treasury, after consultation with the Chairman of the Board of Governors 

of the Federal Reserve System, determines that it is necessary to purchase other financial 

instruments to promote financial market stability. § 3(9)(B), 122 Stat. 3767 (codified at 12 

U.S.C. § 5202(9)(B)). The Dodd-Frank Wall Street Reform and Consumer Protection Act, 

enacted on July 21, 2010, (1) reduced Treasury’s authority to purchase or insure troubled 

assets to $475 billion and (2) prohibited Treasury from using its authority under EESA to 

incur any additional obligations for a program or initiative unless the program or initiative 

already had begun before June 25, 2010. Pub. L. No. 111-203, § 1302, 124 Stat. 1376, 

2133 (2010).

As GM’s primary lender, 

Treasury was concerned about GM’s overall exposure to risks related to 

14Treasury established an internal working group—the auto team—to oversee AIFP and 

provide analysis in support of the Auto Task Force. 

15On June 1, 2009, GM filed a voluntary petition for reorganization under Chapter 11 of 

the U.S. Bankruptcy Code (11 U.S.C. §§ 1101-1174) and conducted a court-supervised 

asset sale (under 11 U.S.C. § 363), in which substantially all of the operating assets of the 

company were sold to General Motors Company, or “new GM,” and most of the 

company’s debt and liabilities remained in the possession of Motors Liquidation Company, 

or “old GM,” to be addressed in bankruptcy court. New GM emerged on July 10, 2009. 

16Deposition of Treasury Official at 185, No. 04-44481 (RDD) (S.D. N.Y. July 21, 2009) 

and Motion of Defendants U.S. Department of the Treasury et al. at 10, No. 2:09-cv-13616 

(E.D. Mich. Feb. 16, 2010). 
 

Page 7 GAO-13-854T 

distressed suppliers, including Delphi. Specifically, Treasury was 

concerned about how GM’s Delphi liabilities would fit within the new 

company’s business plan. According to a Treasury official’s deposition, 

Treasury’s mandate to restructure GM included helping GM determine the 

“best resolution” of the Delphi bankruptcy from GM’s perspective, which 

was guided by three principles (see table 1). However, according to 

Treasury’s February 2010 court motion, the Auto Task Force did not 

dictate what should be done with the Delphi pensions.

Table 1: Treasury’s Guiding Principles for Resolving GM’s Liabilities Related to Delphi

Principle Treasury rationale 

Development of a resolution that guaranteed 

the “sanctity” of GM’s supply chain 

Treasury did not want GM’s attention, which was focused on its own restructuring, to 

be diverted to finding suppliers for the products provided by Delphi. 

Quick resolution of the Delphi bankruptcy Treasury wanted Delphi’s bankruptcy to conclude sooner rather than later, given 

that Delphi already had been in bankruptcy for 3 years. 

A resolution that required the least possible 

amount of investment by GM 

Because GM already had invested billions of dollars in Delphi during Delphi’s 

bankruptcy process, Treasury believed that GM should not provide additional money 

to Delphi absent an overall resolution of the Delphi bankruptcy. 

Source: Deposition of Treasury Official, No. 04-44481 (RDD) (S.D. N.Y. July 21, 2009).

In May 2009, Treasury had anticipated that Delphi’s salaried pensions 

would be terminated, but that GM would assume additional liabilities for 

the Delphi hourly plan, as called for in the second phase of the 

September 2008 agreement. Additionally, on June 1, 2009, Delphi 

announced that its hourly plan would be “addressed by GM.” However, 

the second phase transfer called for Delphi to pay a $2.055 billion 

administrative claim to GM, which it could not do. In the Treasury official’s 

deposition, it was noted that shortly after GM’s bankruptcy filing, GM 

notified Treasury that it had not built sufficient funding into its restructuring 

plan to take on the hourly plan, but that it had built in the assumption that 

it would provide the top-up for Delphi UAW retirees. The second phase of 

the transfer of hourly plan liabilities from Delphi to GM was not in GM’s 

reorganization plan and never took place.

As part of the sale of the assets of old GM to new GM, GM negotiated 

with UAW—which represented its largest employee group—to modify 

wages, benefits, and work rules to be more cost competitive. As a result 

of these negotiations, GM and UAW agreed that new GM would assume 

all employment-related obligations and liabilities under any assumed 

employee benefit plan relating to employees who are or were covered by 

UAW collective bargaining agreements in its master sale and purchase 

GM’s Reorganization 

Maintained Delphi UAW 

Top-Ups Based on UAW’s 

Continued Relationship 

with GM
 

Page 8 GAO-13-854T 

agreement, which included GM’s obligation to provide top-ups to Delphi 

UAW retirees.17

On June 19, 2009, IUE and USWA objected to the proposed sale of GM’s 

assets because retirees of Delphi represented by IUE and USWA would 

not receive the same benefits as retirees of Delphi represented by 

UAW.

No other negotiations took place that resulted in 

comparable obligations concerning top-ups for members of the two other 

unions, IUE and USWA (although they had previously secured top-up 

agreements with GM) or for the splinter unions or the salaried employees 

who had no previous top-up agreements with GM.

18 The court overruled these unions’ objection to the sale, stating 

that new GM needed a “properly motivated workforce to enable [new GM] 

to succeed,” requiring it to enter into “satisfactory agreements with the 

UAW” and was not “similarly motivated in triaging its expenditures to 

assume obligations for retirees of unions whose members, with little in the 

way of exception, no longer work for GM.”19 Accordingly, the bankruptcy 

court approved the sale of GM’s assets on July 5, 2009, and those assets 

were conveyed to new GM on July 10, 2009.

On June 1, 2009, Delphi, citing its inability to fund its plans and a lack of 

feasible alternatives, publicly stated that PBGC “may initiate an 

involuntary termination” of the Delphi salaried plan. Delphi and GM 

entered into agreements with PBGC that provided PBGC an unsecured 

claim in Delphi’s bankruptcy and released PBGC’s current claims and 

 

17The master sale and purchase agreement outlined, among other things, the assets 

being sold by old GM to new GM and the liabilities being assumed by new GM from old 

GM. In re GMC, 407 B.R. 463, 481 (Bankr. S.D.N.Y. 2009) (Decision on debtor’s motion 

for approval of (1) sale of assets to Vehicle Acquisitions Holdings LLC; (2) assumption and 

assignment of related executory contracts; and (3) entry into UAW retiree settlement 

agreement). 

18Objection to Debtors’ Motion Pursuant to 11 U.S.C. §§ 105, 363(b), (f), (k) and (m), and 

365 and Fed. R. Bankr. P. 2002, 6004, and 6006, to (I) Approve (A) the Sale Pursuant to 

the Master Sale and Purchase Agreement with Vehicle Acquisition Holdings LLC, a U.S. 

Treasury-Sponsored Purchaser, Free and Clear of Liens, Claims, Encumbrances, and 

Other Interests; (B) the Assumption and Assignment of Certain Executory Contracts and

Unexpired Leases; and (C) Other Relief; and (II) Schedule Sale Approval Hearing, In re 

General Motors Corporation, No. 09-50026(REG) (Bankr. S.D.N.Y. June 19, 2009). 

19407 B.R. 512. 

Delphi Publicly Stated 

That It Was Unable to 

Fund Its Plans and the 

Plans Were Terminated
 

Page 9 GAO-13-854T 

foreign liens on Delphi’s assets on July 21, 2009.20 On July 22, 2009—12 

days after the sale of old GM’s assets to new GM—PBGC announced the 

termination of all six of Delphi’s qualified DB plans, and on August 10, 

2009, PBGC assumed trusteeship of the plans. PBGC determined that 

the Delphi pension plans were underfunded by $7 billion when they were 

terminated. PBGC estimated that it would need to make up about $6 

billion of that shortfall using PBGC funds,21 leaving plan participants to 

bear the loss of the $1 billion difference through reduced benefit amounts 

provided by PBGC, consistent with statutory limitations.22

The approval of the sale of old GM did not resolve IUE’s and USWA’s 

claims that new GM was required to continue to provide the pension 

benefit guarantees in accordance with collectively bargained agreements. 

Both old GM and new GM denied these claims. According to a company 

filing, new GM maintained that it was not obligated to assume or to 

continue to abide by old GM’s collective bargaining agreements with IUE 

and USWA, while old GM maintained that it was entitled to cancel or 

terminate all obligations arising from collective bargaining agreements 

between old GM and IUE or USWA. In the summer of 2009, IUE and 

USWA shifted the focus of their objections from the GM bankruptcy 

settlement to the Delphi bankruptcy settlement. On July 9 and July 15, 

 

20PBGC agreed to release its $196 million of foreign liens (foreign subsidiaries had not 

filed for bankruptcy) and other termination claims in exchange for a $3 billion unsecured 

claim in Delphi’s bankruptcy, a $70 million cash contribution from GM, and 10 percent of 

the first $7.2 billion of distributions from Delphi Automotive LLP, the newly created British 

partnership that purchased most of Delphi’s assets.

21GM also assumed about $2 billion in net liabilities when it accepted the transfer of about 

a fourth of Delphi’s hourly plan in September 2008. In addition, GM expects to pay an 

estimated $1 billion in top-up benefits to Delphi hourly employees. 

22PBGC pays participant benefits only up to certain limits set forth by the Employee 

Retirement Income Security Act of 1974. 29 U.S.C. §§ 1322 and 1322a. Participants 

whose benefits under the plan would otherwise exceed these statutory limits may have 

their benefits reduced to the guaranteed amount, unless the plan has sufficient assets to 

pay the nonguaranteed portion of their benefits, either in part or in full.

New GM Ultimately 

Agreed to Provide Top-Ups 

for IUE and USWA to Help 

Finalize Delphi’s 

Bankruptcy 
 

Page 10 GAO-13-854T 

2009, IUE and USWA, along with some of the splinter unions, filed 

objections against Delphi’s proposed reorganization plan and sale.23

While new GM maintained that it was not obligated to provide top-ups to 

Delphi IUE and USWA retirees, it did have reason to want to resolve 

Delphi’s bankruptcy, given GM’s reliance on Delphi for parts.24 Moreover, 

IUE and USWA, which still represented part of Delphi’s workforce, 

needed to give their consent to finalize the sale of assets in Delphi’s 

bankruptcy.25

 

23Preliminary Objection of IUE-CWA to Motion for Order Authorizing and Approving the 

Equity Purchase and Commitment Agreement Pursuant to Sections 105(a), 363(b), 503(b) 

and 507(a) of the Bankruptcy Code, No. 05-44481 (RDD), (Bankr. S.D.N.Y. July 9, 2009) 

and Joinder of United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied 

Industrial and Service Workers International Union to Preliminary Objection of IOUE 

Locals and IBEW and IAM to Debtors’ Motion for Order Authorizing and Approving 

Modified Plan of Reorganization, No. 05-44481 (RDD), (Bankr. S.D.N.Y. July. 15, 2009). 

Objection to Debtors’ Proposed Modifications to Debtors’ First Amended Plan of 

Reorganization (As Modified) at 2, No. 05-44481 (RDD) (Bankr. S.D.N.Y. July 15, 2009). 

According to a GM official’s court declaration, a prolonged 

cessation in the supply of parts from Delphi to GM would have had a 

“devastating effect on GM, its ability to reorganize, and the communities 

that depend on employment by GM and its community of parts 

24According to a July 2009 declaration of a GM official, since the spin-off from GM, Delphi 

was GM’s largest component parts supplier, accounting for approximately 11.3 percent of 

GM’s North American purchases and 9.6 percent of GM’s global purchases in 2008. 

Declaration of Randall L. Pappal in Support of Debtors’ Motion for Entry of Order 

Approving (I) Master Disposition Agreement for Purchase of Certain Assets of Delphi 

Corp., (II) Related Agreements, (III) Assumption and Assignment of Executory Contracts, 

(IV) Agreement with PBGC, and (V) Entry into Alternative Transaction in Lieu Thereof, at 

4, In re General Motors Corp., No. 09-50026 (Bankr. S.D.N.Y. July 8, 2009). 

25Master Disposition Agreement among Delphi Corp.; GM Components Holdings, LLC; 

Gen. Motors Co., Motors Liquidation Co.; DIP Holdco3, LLC; and the Other Sellers and 

Other Buyers Party Hereto at 96 (July 26, 2009). 
 

Page 11 GAO-13-854T 

suppliers.”26 As a result, new GM signed a settlement agreement in 

September 2009 that, among other things, required new GM to provide 

top-ups to retirees of Delphi represented by IUE or USWA who were 

covered by the benefit guarantee agreements that GM had entered with 

IUE and USWA in 1999.27

GM’s agreements with certain unions gave rise to differences in 

participant benefits. Because Delphi’s pension plans were terminated with 

insufficient assets to pay all accrued benefits in July 2009, and because 

PBGC must adhere to statutory limits on the amount of benefits it 

guarantees to individuals, many Delphi retirees will receive less from 

PBGC than their full benefit promised by Delphi. Based on PBGC’s 

review of cases as of June 2011, when we conducted our December 

2011 study, just under half of both the hourly and salaried plan retirees 

had received reductions in their promised benefits due to the application 

of statutory benefit limits. However, those participants in the hourly plan 

receiving the top-ups were protected from such benefit reductions 

because GM had agreed to supplement their PBGC benefit to replace 

any benefit loss, while other hourly employees as well as employees in 

Delphi’s salaried plan and the other smaller plans were not protected from 

such losses.

As part of the settlement agreement, IUE and 

USWA agreed to withdraw their objections against Delphi’s bankruptcy, 

resulting in the completion of Delphi’s reorganization on October 6, 2009, 

with the sale of its assets.

 

26The July 2009 declaration of a GM official stated that Delphi was a sole-source, just-intime supplier of many critical parts to GM, including parts that are used in almost every 

GM product line in North America and identified several ways in which a cessation of parts 

delivery by Delphi could affect GM, including that (1) most parts that Delphi manufactures 

for GM are not readily available from an alternate source, and while GM could accelerate 

efforts to re-source Delphi parts in the event of a supply interruption, the sheer magnitude 

of the parts to be re-sourced and revalidation required would take at least several months 

to achieve; (2) because GM operates on a just-in-time inventory delivery system, GM 

plants relying on just-in-time shipments may run out of inventory of such parts and have to 

shut down within a matter of days, if Delphi ever ceased shipping even a small fraction of 

production parts to GM; and (3) the shutdown of GM plants as a result of termination of 

deliveries of affected parts from Delphi could idle tens of thousands of GM workers, 

significantly decrease GM’s revenues, and increase GM’s costs to expedite resourcing 

efforts. 

27Settlement Agreement Between and Among GMCO/MLC-IUE-CWA and USWA 

Regarding Retiree Health Care, Life Insurance, Pension Top-Up, and Modification and 

GMCO Assumption of MLC-IUE-CWA CBA, dated Sept. 10, 2009. 
 

Page 12 GAO-13-854T 

As GM’s primary lender in bankruptcy, Treasury played a significant role 

in helping GM resolve the Delphi bankruptcy in terms of GM’s interests. 

However, court filings and statements from GM and Treasury officials 

suggest that Treasury deferred to GM’s business judgment about the 

Delphi pension plans—that is, their sponsorship and the decision to honor 

existing top-up agreements. According to public records and Treasury 

officials, Treasury agreed with GM’s assessment that the company could 

not afford the potential costs of sponsoring the Delphi hourly plan. 

Additionally, PBGC officials have maintained that their agency’s decision 

to terminate the Delphi plans was made independent from Treasury’s 

input. As we reported in 2011, Treasury officials said that while Treasury 

did not explicitly approve or disapprove of GM’s agreeing to honor 

previously negotiated top-up agreements with some unions, it agreed that 

GM had solid commercial reasons to enter into such an agreement.

From Treasury’s initial discussions with PBGC about Delphi’s pensions in 

April 2009 until after GM’s bankruptcy filing on June 1, 2009, Treasury 

had anticipated that PBGC would terminate Delphi’s salaried pension 

plan but that GM would assume the remaining portion of Delphi’s hourly 

plan, as called for in the second phase of the September 2008 

agreement.28 According to a Treasury official’s deposition and our 

interviews with Treasury officials, Treasury agreed with GM’s rationale not 

to assume the now underfunded Delphi salaried plan, because that plan 

had been fully funded when GM transferred it to Delphi in 1999. However, 

the Treasury official’s deposition indicated that Treasury thought it was 

reasonable for GM to assume the Delphi hourly plan for UAWrepresented workers, because of UAW’s continuing role with the new GM 

and because the hourly plan, which covered both the UAW and other 

union-represented workers, had not been fully funded at the time the plan 

was transferred from GM to Delphi in 1999.29

According to our review of the records, Treasury was involved in 

discussions with PBGC and GM on how to address Delphi’s pensions 

before GM’s bankruptcy filing. Specifically, according to a Treasury 

official’s deposition, initial discussions with PBGC, GM, and Treasury in 

 

28Deposition of Treasury Official, No. 04-44481 (RDD) (S.D. N.Y. July 21, 2009). 

29According to the deposition, Treasury was not focused on the other unions’ plans at this 

time but was concerned about UAW because of UAW’s role for new GM. 

Treasury Worked with 

GM to Resolve the 

Delphi Bankruptcy

Decisions Related to Plan 

Sponsorship 
 

Page 13 GAO-13-854T 

April and May 2009 centered on trying to reach an agreement under 

which, among other things, the Delphi salaried plan would be terminated 

and GM would assume the hourly pension plan. According to PBGC 

officials, discussions in April and May 2009 revolved around how to deal 

with Delphi’s pension plans in light of the collapse of the automotive 

market, growing concerns about Delphi’s imminent liquidation and 

inability to maintain its pension plans, and GM’s own financial difficulties 

and impending bankruptcy. However, PBGC officials told us that they had 

not yet reached any agreement with GM or Delphi about the future of the 

Delphi pension plans.

According to court filings, GM officials first informed Treasury on June 3, 

2009, (shortly after GM’s bankruptcy filing) that they had concerns about 

taking on the hourly plan and had not built the cost of doing so into their 

restructuring plan. In June 2009, GM developed and provided Treasury 

with an assessment of the costs of Delphi’s pensions, which explained 

that the restructuring plan did not assume the transfer of remaining Delphi 

hourly or salaried plans. The assessment also stated that, subject to 

certain conditions, GM was obligated to absorb the second transfer of 

Delphi’s hourly plan but did not expect Delphi to meet those conditions.30

GM also noted that it was not obligated to absorb Delphi’s salaried plans. 

After reviewing GM’s calculations and engaging in discussions with GM’s 

pension team, Treasury agreed with GM’s assessment that taking on the 

Delphi hourly plan was a “3 billion dollar liability that GM could not 

afford.”31 In a legal brief, Treasury asserted that the department did not 

dictate what should be done with the Delphi pensions and that Treasury 

agreed with GM’s decisions.32

As we reported in 2011, according to PBGC, Treasury did not play an 

active role in PBGC’s decision to terminate the Delphi plans, although by 

statute the Secretary of the Treasury is one of PBGC’s three board 

 

30The assessment added that since the first transfer in September 2008, the unfunded 

liability for the remainder of Delphi’s hourly plan had increased from $1.5 billion to 

approximately $3.2 to 3.5 billion as of March 31, 2009.

31Deposition of Treasury Official, No. 04-44481 (RDD) (S.D. N.Y. July 21, 2009). Upon 

termination in July 2009, PBGC calculated that the underfunding of the hourly plan totaled 

$4.4 billion. 

32Motion of Defendants U.S. Dep’t of the Treasury et al. to Dismiss or, in the Alternative, 

for Summary Judgment at 24, No. 2:09-CV-13616 (E.D. Mich. Feb. 16, 2010).
 

Page 14 GAO-13-854T 

members.33 According to PBGC officials, PBGC’s director at the time 

informed the board of PBGC’s decision to seek termination of the Delphi 

plans, gave the board advance notice of subsequent implementation of 

that decision, and routinely kept the board informed of the agency’s 

actions in the Delphi bankruptcy case, consistent with PBGC’s practice in 

other large cases. The law gives the board responsibility to establish and 

oversee PBGC policies, but according to PBGC, the board decides broad 

policy issues that may arise from cases without getting involved directly in 

those cases.34 For their part, Treasury officials acknowledged that the 

department had multiple roles in this process by virtue of its roles in 

PBGC oversight and in managing the U.S. investment in new GM, but 

noted that Treasury does not communicate with PBGC about its GM 

investment activities.35 Moreover, in response to questions from 

Congress, the Treasury Secretary stated that Treasury did not make the 

decision to terminate Delphi’s pension plans.36

Although GM decided not to assume the second installment of Delphi’s 

hourly plan, GM did decide to honor existing top-up agreements for 

commercial reasons that Treasury found reasonable. As noted in a 

Treasury official’s deposition, during GM’s bankruptcy process, GM was 

prepared to honor the obligation of providing top-ups to Delphi UAW 

retirees, while the situation was less clear in relation to comparable 

agreements with IUE and USWA. GM officials told us that the company 

agreed to honor the top-up agreement with UAW during its restructuring 

because of its dependence on the union, whose members made up a 

substantial part of GM’s workforce. As previously noted, GM agreed to 

 

3329 U.S.C. § 1302(d). As we reported in GAO-12-168, PBGC’s decision to terminate the 

plans was ultimately precipitated by the apparent lack of a viable sponsor, impending 

foreclosure on Delphi’s assets, and the prospect of increased losses for PBGC and the 

plans that would occur upon liquidation. Our examination of PBGC termination decisions 

for nine of its ten largest insurance claims (Delphi’s being the tenth) shows the agency 

making assessments similar to those it made for the Delphi pension plans. See 

GAO-12-168 for more details on this work.

3429 U.S.C. § 1302(d) and (f).

35GAO-10-492. 

36The Federal Bailout of AIG: Hearing before the H. Comm. on Oversight and Government 

Reform, 111th Cong. 310 (2010) (answers to questions for the record from Timothy 

Geithner, Secretary of the Treasury).

Decisions Related to TopUp Agreements
 

Page 15 GAO-13-854T 

provide top-ups to the Delphi UAW retirees as part of GM’s master sale 

and purchase agreement, to which Treasury gave its approval.

According to a Treasury official’s deposition, Treasury was kept apprised 

of GM’s ongoing bargaining with IUE and USWA on a variety of issues, 

including the top-ups.37 According to Treasury officials, Treasury’s 

consent for transactions greater than $100 million, which had been 

required before GM’s bankruptcy, was not required of new GM. 

Therefore, Treasury’s consent was not required when the settlement 

agreement was signed 2 months after new GM began operations. 

Negotiations resulted in the September 2009 settlement agreement 

between new GM, old GM, IUE, and USWA. According to the agreement, 

the parties entered into it after consideration of the “factual and legal 

arguments regarding these issues, as well as the costs, risks, and delays 

associated with litigating these issues.”38

As we reported in 2011, although Treasury officials said Treasury did not 

explicitly approve or disapprove of GM providing top-ups to the Delphi 

UAW, USWA, and IUE retirees, Treasury subsequently commented on 

GM’s decision. In its legal brief, Treasury stated that GM had solid 

commercial reasons for providing the top-ups.39

 

37Deposition of Treasury Official, No. 04-44481 (RDD) (S.D. N.Y. July 21, 2009). 

Specifically, Treasury 

stated that its aim in negotiating the details of GM’s reorganization plan 

was to ensure that new GM would assume only those liabilities of old GM 

that were “commercially necessary” for new GM to operate. Treasury 

noted in the brief that because of new GM’s dependence on the UAW 

workforce and the costs, risks, and delays associated with litigating 

USWA’s and IUE’s claims related to the Delphi bankruptcy, new GM had 

solid commercial reasons to agree to provide the top-ups to the Delphi 

UAW, USWA, and IUE retirees. Additionally, Treasury officials noted that, 

unlike the hourly plan, the salaried plan was fully funded at the time GM 

transferred it to Delphi. Also, because GM was never obligated to provide 

top-ups to the salaried or other retirees not represented by UAW, IUE, 

38Settlement Agreement Between and Among GMCO/MLC-IUE-CWA and USWA 

Regarding Retiree Health Care, Life Insurance, Pension Top-Up, and Modification and 

GMCO Assumption of MLC-IUE-CWA CBA, dated Sept. 10, 2009. 

39Motion of Defendants U.S. Dep’t of the Treasury et al. at 28, No. 2:09-cv-13616 (E.D. 

Mich. Feb. 16, 2010).
 

Page 16 GAO-13-854T 

and USWA, GM did not have any legal obligation to agree to provide topups to these groups.

The termination of Delphi’s pension plans culminated from a complicated 

and intertwined set of events involving Delphi, GM, various unions, and 

Treasury, as well as PBGC. That some participants will not get the full 

benefits promised to them by their employer is not unusual when 

companies go bankrupt and leave their plans with large unfunded 

liabilities. At the same time, the role that GM and Treasury played in the 

events leading up to termination caused the process to be unusual in 

several respects. As we have reported previously, Treasury’s multiple 

roles in situations involving the auto industry and workers’ pensions 

created potential tensions and challenges.40

In examining lessons learned from the government’s assistance to private 

companies, we have also previously reported that being both a creditor 

and a shareholder in private companies—as Treasury was for a period 

time for GM—created another conflict for the government.

These roles include 

shareholder, creditor, investor, regulator and policymaker. For example, 

with regard to its roles in the termination of the Delphi pension plans, 

Treasury, as a policymaker, had an interest in safeguarding taxpayer 

investment. However, as a regulator—through the Secretary of the 

Treasury’s role on PBGC’s board—its role was to protect the financial

viability of workers’ pension plans. These roles created perceived or 

potential conflicts as decisions were made about the timing of the 

termination of the plans.

41

 

40See, 

For instance, 

as a major creditor, the government was more likely to be involved in an 

entity’s operations than it was when acting only as a shareholder, and 

operational decisions that it imposed could affect returns on taxpayer 

investments. Additionally, the varied and sometimes conflicting roles of 

the government as a shareholder, creditor, regulator, and policymaker 

potentially subjected private companies to greater government scrutiny 

and pressure than they might have otherwise experienced. In particular, 

the government’s investments in these companies increased the level of 

GAO-10-492 and GAO, Financial Assistance: Ongoing Challenges and Guiding 

Principles Related to Government Assistance For Private Sector Companies, GAO-10-719 

(Washington, D.C.: Aug. 3, 2010).

41GAO-10-719. 

Treasury’s Multiple Roles 

Created Perceived or 

Potential Conflicts
 

Page 17 GAO-13-854T 

government and public oversight and scrutiny these companies received, 

as policymakers, elected officials, and regulators worked to ensure that 

taxpayer interests were protected. The companies may also have been

subjected to pressure from government officials to reconsider or alter 

business decisions that affected the companies’ bottom lines. For 

example, Chrysler and GM faced pressure to reinstate many of the auto 

dealerships they had slated for closure.42

Although Treasury has established policies to separate these interests, 

and various parties told us that Treasury did not play an active role in 

decisions regarding Delphi’s plans, potential tensions due to these 

multiple roles remained. Treasury established various structures to 

mitigate any potential or perceived conflicts of interest related to its 

investment in the automakers. For example, Treasury developed core 

principles to guide its oversight of its investments: (1) acting as reluctant 

shareholder, for example, by not owning equity stakes in companies any 

longer than necessary; (2) not interfering in the day-to-day management 

decisions; (3) ensuring a strong board of directors; and (4) exercising 

limited voting rights. As we reported in 2010, according to Treasury 

officials, the use of these core principles helped limit the reach and ability 

of the government to exert its powerful influence on the business and 

operational matters of the companies. In addition, Treasury established a 

protective barrier between the Treasury officials (beneath the Secretary 

level) who made policy-related decisions with respect to investments in 

GM and the Treasury officials who were responsible for regulating 

pensions or overseeing the operations of PBGC. Despite these efforts, 

we noted in 2010 that tensions among the multiple roles remained. To 

help mitigate the potential or perceived tensions, we emphasized the 

importance of Treasury regularly communicating with Congress about its 

oversight and activities related to its investments in the automakers.43 In 

response to a previous recommendation, Treasury implemented a revised 

reporting policy, attempting to balance concerns about publicly disclosing 

proprietary information in a competitive market with the need for greater 

transparency.

 

42GAO-10-151. 

43GAO-10-492. 
 

Page 18 GAO-13-854T 

This concludes our prepared statement. We would be pleased to answer 

any questions you may have.

For further information on this testimony or GAO’s March and December 

2011 reports on the termination of Delphi’s pension plans, please contact 

me at (202) 512-7215 or bovbjergb@gao.gov, or A. Nicole Clowers, 

Director, Financial Markets and Community Investment Issues at (202) 

512-8678 or clowersa@gao.gov. Other key contributors to this statement 

include Mark M. Glickman, Heather Krause, Raymond Sendejas, and 

Margie Shields. Contact points for our Congressional Relations and 

Public Affairs offices may be found on the last page of this statement.

GAO Contacts and 

Staff 

Acknowledgments 

(131278)
 

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